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Tax Loophole Could Give Pension Funds a Boost

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Some companies can get an extra tax break on contributions to their pension funds this year, but they have to hurry to take advantage of a one-time rule change, according to The Wall Street Journal.

Pension contributions made before mid-September of this year can be deducted on tax returns for 2017, before corporate tax rates were cut from 35 percent to 21 percent.

“That means a company that contributes $100 million to its pension plan now can save $35 million in taxes,” the Journal says, “while a company contributing the same amount after the deadline would save just $21 million, based on the new 21% corporate tax rate.”

The enhanced tax break is available only to companies that have underfunded defined-benefit plans, but that includes plenty of firms. As of last week, defined-benefit plans for S&P 500 companies are underfunded by about 10 percent, with obligations of a bit more than $2 trillion but assets of only $1.8 trillion.

For companies that are falling short, “This is a no-brainer to the extent that you have the liquidity to do it,” Wharton professor Jennifer Blouin said.